Saturday, July 11, 2009

While I wish to avoid pathologizing a political persuasion that is different than my own, I find latent evolved cognitive errors that contribute to popular distrust of markets highly explanatory. These errors highlight how uphill the fight is for libertarians. It doesn't help that humans do not reason to their conclusions. This is not an excuse for irrationality, but information to help overcome such irrationality. Only when a person is aware of their propensity to reason around an intuition can they possibly overcome that flaw and step closer towards intellectual honesty. At least people generally pay lip service to reason, which is probably better than dismissing rationality altogether, provided that lip service to reason is a complement to actual reason and not just a substitute.

The combined wrongness and entrenchment of an anti-market bias is similar to a religious idea, which is similarly grounded in cognitive errors. The difficulty of trying to convince someone who intuitively distrusts markets that markets are actually desirable is on the order of magnitude of trying to convince a religious person to reject their religious ideology.

Humans are prone to all sorts of biases. Let's not forget either that we human beings are in danger of drawing on our own contexts as the source of policy prescriptions for all other people. On the other hand, we can hold beliefs that contradict our own experience. Our brains are complex enough to maintain complicated models of the world, but we can partition those models fairly easily to alleviate cognitive dissonance. A productive person who creates value, helps other people, and takes a wage for that labor can nevertheless believe that a market is fundamentally unfair, and that there is some process by which people with higher incomes are exploiting others, even for purely Pareto-optimal interactions.

All this makes sense considering an evolutionary context. Our ancestors that waged war over resources cultivated the meme of distrust from a zero-sum environment that still plagues us today. We intuit that if one party is richer, it must be because another party is poorer. Biologically based evolved cognitive errors mean that anti-market bias is quite strong, strong enough to remain prevalent even in a modern capitalist society.

Just like religious scientists, leftists can easily compartmentalize contradictory beliefs. Will Wilkinson recently detailed, "American liberals talk a good game about equality, but their rhetoric, like conservative talk about liberty, is mostly empty." The default economic policy prescription of mainstream American leftists to grant more power to government officials clashes with the liberal idea of limiting power to protect the most vulnerable in society. These egalitarian ideas also clash with their authoritarian prescriptions that politicians can know better how to make decisions for their constituents than those constituents themselves.

I hear less from leftists about how to structure government policy than I do from libertarians. My hunch is that because their focus is on alleviating what they perceive as social or economic problems, they just assume that when the government sets out do fix something, the structure of the policy doesn't matter because the government, unconstrained by the profit motive, more easily acts in the public interest. Ignoring how people in government respond to incentives might be due in part to wishful thinking that public officials don't act in their self-interest. It may also stem from unawareness that special interests capture democracy.

"The difficulty of trying to convince someone who intuitively distrusts markets that markets are actually desirable is on the order of magnitude of trying to convince a religious person to reject their religious ideology."

Isn't this a false dichotomy? All good capitalists should distrust markets because if markets are perfect then there's no opportunity to make money from them.

"The difficulty of trying to convince someone who intuitively distrusts markets that markets are actually desirable is on the order of magnitude of trying to convince a religious person to reject their religious ideology."

Isn't this a false dichotomy? All good capitalists should distrust markets because if markets are perfect then there's no opportunity to make money from them.

Dee,

This is not a false dichotomy. I'm not sure what you mean by a "perfect" market, but I think you might be talking about a perfectly competitive market, which is a theoretical tool. It doesn't exist in the real world, but in the model, sellers in the market make zero economic profits.

There's a difference between accounting and economic profit. Accounting profit is everything listed on the balance sheet. Economic profit takes into account opportunity cost, the highest-valued alternative choice. This means that no more firms would have incentive to enter the sector, because they would only make as much money as in alternative activities. So, a firm that's already in the market could still be making accounting profit.

I hope that I've explained this well. If you need more, check out Wikipedia's page on this.http://en.wikipedia.org/wiki/Perfect_competition

What I mean is that intuitive distrust of markets can coincide with believing markets are desireable. Markets are not perfect, therefore distrusting them is a good idea.

I think it's an unfortunate truth that liberals do not think enough about the structure of government policy. But I also think that libertarians put too much faith in the market and free-market-style decisionmaking. This is not some sort of "both sides are wrong" mentality. It has just been my experience that many libertarians tend to stop thinking critically about things like imperfect information and the short-term effects of market once someone proposes a market-based solution to a problem.

What I mean is that intuitive distrust of markets can coincide with believing markets are desireable. Markets are not perfect, therefore distrusting them is a good idea.

Dee,

This seems odd to me. Can you explain this further? I can't think of anything at all where I would think something is a good idea while simultaneously distrusting it.

I think it's an unfortunate truth that liberals do not think enough about the structure of government policy. But I also think that libertarians put too much faith in the market and free-market-style decisionmaking. This is not some sort of "both sides are wrong" mentality. It has just been my experience that many libertarians tend to stop thinking critically about things like imperfect information and the short-term effects of market once someone proposes a market-based solution to a problem.

I can't speak for any collective group, but yes, I see bad arguments from all sides.

By "imperfect information," I think you're referring to asymmetric information, which is a market failure. There are two types, moral hazard, and adverse selection. I do not know of any way that central planning could fix moral hazard, though it often makes it worse, but central planning can indeed can alleviate adverse selection. Adverse selection can also be cured by more markets though, markets for information. If there's some differential of information, agents can profit off of it by trading.

Disregarding short-term harm brings to mind arguments about free trade and protectionism. To be consistent about weighing costs and benefits there, you could pay off the industries that lose out in the short-run by taxing some of the extra value created from the free trade, and you would still have more value. It's a kind of concession with which I'm mostly comfortable, but I can't speak for others.

This seems odd to me. Can you explain this further? I can't think of anything at all where I would think something is a good idea while simultaneously distrusting it.

You can think that something is a good idea in general, but distrust the application of the idea in practice. For instance, I think people would agree that polling people is a good way to get a sense of public opinion, but poll data cannot be trusted completely. You have to ask about the manner in which the poll was conducted and how the results were analyzed.

I really doubt most liberals distrust markets so much that they don't think gains can be created from trade. That's basic economics. But I think the general view of the left is that markets create incentives that lead to systematic inequality of results. That is, the rich tend to get richer and the poor tend to get poorer. Perpetuating this system is unethical to liberals, therefore they advocate government intervention to redistribute wealth. While it may or may not be hypocritical, I don't think the underlying view of the left is simply based on a cognitive error.

However, I would agree with your post in that people form opinions based on heuristics instead of examining the arguments on both sides. So a liberal, when faced with an argument to privatize, say, social security might think "markets = bad" and become instantly opposed to it. This is not just a cognitive error of the left. It plagues the right as well. A libertarian, when faced with an argument to socialize healthcare might think "goverment = bad" and become instantly opposed to the idea as well, without learning anything about it.

Anyway, that's really my point that I tried to succinctly, but maybe not so clearly.

I really doubt most liberals distrust markets so much that they don't think gains can be created from trade. That's basic economics. But I think the general view of the left is that markets create incentives that lead to systematic inequality of results. That is, the rich tend to get richer and the poor tend to get poorer. Perpetuating this system is unethical to liberals, therefore they advocate government intervention to redistribute wealth. While it may or may not be hypocritical, I don't think the underlying view of the left is simply based on a cognitive error.

I agree with you. I think this is an accurate description of modern progressive politics. I did not mean to explain how cognitive errors are the foundation of progressive politics, but rather, just to highlight how they contribute to these beliefs.

However, I would agree with your post in that people form opinions based on heuristics instead of examining the arguments on both sides. So a liberal, when faced with an argument to privatize, say, social security might think "markets = bad" and become instantly opposed to it. This is not just a cognitive error of the left. It plagues the right as well. A libertarian, when faced with an argument to socialize healthcare might think "goverment = bad" and become instantly opposed to the idea as well, without learning anything about it.

Yes, this is true as well. That's why we always must strive for the most rigorous intellectual honesty!